Written by Holtby Turner
For incumbents with big innovation ambitions, choosing the right start-up partner is much like a courtship, especially since the relationship is likely to be a lengthy one. In our experience at Holtby Turner Executive Search, these arrangements tend to involve significant commitment – not just in terms of money – but time and internal resources from venture partners and investors. So are joint ventures a way forward for real estate innovation?
Digital innovations that win long term, usually need to seize first (or second) mover advantage and thus depend on speed to market and fast scaling-up. Start-ups choose corporate partners to gain access to market knowledge, customer data (and an existing customer base), and usually, a distribution network for sales.
These truly disruptive innovators – differentiated as deep tech start-ups – usually need around three years of research, build-time and prototyping to be market ready. Their greatest challenge is often a lack of fit into existing business models. However, this is arguably their greatest strength and where the game-changing opportunities lie. Look no further than Uber, AirBnb, WeWork and Netflix!
In my endeavour to learn more about technology, I listen to a lot of podcasts. Recently I heard that each deep technology cycle is broken into two phases, installation and deployment. It comes from research carried out by Carlota Perez on the ‘Technological Surge Cycle’. In a nutshell, installation requires enormous capital injections so infrastructure can be built – for example, rails for the railroads, and server and network systems for the internet. On average this lasts twenty to thirty years. Perez terms this ‘finance capital’, and it carries huge risk. Yet when deep and disruptive technologies are built into successful companies (like Facebook), there are vast investment returns.
This is totally different from operational capital, which is the cash that balances P&Ls. Whilst risky, it’s far from the level of risk that finance capital carries. Because an incumbent’s ROI is pretty much pie in the sky at the finance capital stage, it’s very rare to see them invest in speculative technologies, such as cryptocurrencies, for example.
We encourage large organisations in real estate to understand not just what a prospective start-up partner seeks, but how that in turn aligns with your organisation. Has success on both sides been clearly identified? It’s a topic Antony Slumbers delves into in this report. It’s also one that BCG Henderson Institute covers brilliantly in their article, What Deep-Tech Startups Want From Corporate Partners. Their list below highlights the main areas corporate venture partners and start-ups need to consider carefully before jumping into bed together:
- Has adequate preparation on the part of the start-up been made? Is there a clear value proposition, application, and proof of concept?
- Is there a clear role for the start-up within the corporation, and their role agreed upon?
- Is there real evidence of buy-in from the corporate? Does the start-up have an internal sponsor within the corporation?
- How does the timing of the partnership fit?
- Do a corporation’s organisational and operational processes enable the necessary complex decisions to be made swiftly?
- Have both sides clearly defined their relationship right from the beginning, including HR objectives?
Even when the desire to create partnerships is there, steering through the unstructured world of start-ups is really tough for both sides, but especially established businesses.
Critical, therefore, are sponsors of innovation, who act as start-up ambassadors internally. But who are they and what does that role actually include?
The start-ups that have the best chance of success are those that have been created by individuals from the industry they are trying to disrupt, and the acquired start-ups that have the best chance of success within a big corporate are the ones that have been properly embedded into the parent company and where the wider business is properly engaged.
Typically, there will be one senior individual within the parent company that is given the responsibility for the relationship with the acquired start-up and its integration. Their focus should be to ensure that all new ideas tie in with the core business strategy and that everyone in the wider business is fully engaged.
To date, this has typically been the Chief Operating Officer, Head of Research or perhaps HR. Therefore, this is not the main focus of their role and just an additional responsibility added to a long list of other accountabilities. However, the more tech-mature industries now have a Chief Innovation Officer or similar whose full-time role is to look at new ways to innovate either organically or by M&A.
